Can an Inheritance Affect Your Benefits?

/ wills and probate

Receiving an inheritance can have significant consequences for individuals in receipt of state benefits in England and Wales. Indeed, my colleage Ashley has written about this topic previously (see here & here) as it crops up frequesntly when discussing Wills and Estate Planning. 

While inheriting money or assets might provide financial relief, it can also affect eligibility for means-tested benefits, such as Universal Credit, Housing Benefit, or Income Support.  This is often a concern I am presented with when speaking with individuals looking to make a Will to benefit loved ones who are in receipt of benefits.

How Inheritance Affects Benefits

In England and Wales, most means-tested benefits are based on an individual’s income and savings.   If you inherit a large sum of money or valuable property, your savings may exceed the threshold for benefits, resulting in a reduction or complete loss of entitlement.

  • Universal Credit: If your savings exceed £6,000, your Universal Credit may be reduced. If they exceed £16,000, you will not be eligible.

  • Housing Benefit: Like Universal Credit, Housing Benefit is also means-tested, and an inheritance could make you ineligible if your savings go above the £16,000 limit.

  • Income Support and Pension Credit: Inheritance may affect your eligibility for other means-tested benefits like Income Support and Pension Credit. For Pension Credit, this will be reduced if you have savings over £10,000.

What Can a Testator Do?

Testators (those creating a will) can help mitigate the impact of an inheritance on the beneficiary’s benefits by considering creating a discretionary trust in their will. This allows the inheritance to be managed by trustees and distributed at their discretion, keeping the funds out of the direct control of the beneficiary.   As a result, the inheritance may not count as the beneficiary’s savings when assessing eligibility for benefits.

What Can a Beneficiary Do?

  • Spend the money:  A beneficiary in receipt of benefits might need the capital to pay for certain obligations, for example to pay off debt, or for well needed repairs or modifications to a house.  Spending the inheritance on such things, can be one way of ensuring that the beneficiary can still use the well needed money, but not have it affect their eligibility to means tested benefits.You would still need to declare the Inheritance to the Local Authority at the time you receive it.

  • Disclaim:  While no beneficiary under a Will can be forced to accept an inheritance and can refuse (disclaim) it, care must be taken.  Although you do not legally need to declare an inheritance to the Local Authority if you have disclaimed your right to it, there may be other ways they can find out about it, and if you disclaim purely to retain your right to means-tested benefits, this could again be considered a deliberate deprivation.   

Deprivation of Assets

A deliberate deprivation of assets is when an individual reduces their capital assets, either because they have given the assets away, spent them or refused to accept them, with a ‘deliberate’ intention of reducing their capital, to avoid care fees, taxes or ensure they remain eligible for certain benefits. 

Any case law on this?

Home repairs - In R (on the application of H) v Secretary of State for Work and Pensions (2013), it was decided that money spent on home repairs was reasonable in the circumstances and there was no evidence that they were trying to reduce their assets to qualify for benefits.   

Paying off debts - In R (on the application of C) v Secretary of State for Work and Pensions [2016] concerned a claiming who used savings to pay off debt.   It was decided that while they had spent money on legitimate debts, the spending itself was considered excessive and not reasonable. 

Key Takeaway:

Intention Matters - The key factor in cases of deprivation of assets is the intent behind the transaction.   If an individual spends money on home repairs, paying off debt or other necessary purposes, this is usually not considered "deliberate deprivation" unless there is clear evidence that the person was trying to reduce their savings specifically to increase their benefits entitlement.

If you would like to discuss making a Will to limit the effect it may have on someone’s benefits, please contact Alex Stanier on 01494 893533 or by email.